Medicaid will cover your long term care (LTC) nursing home needs for free but only once you have a minimal amount of assets ($2000 in most cases). These kinds of asset limits are set up by each state. Should you have asset in excess of this amount, State medicaid programs can claim these assets to reimburse the state for LTC costs paid on your behalf.
The process of protecting these extra assets for beneficiaries or even a spouse and against Medicaid confiscation has become known as 'Medicaid Planning'. Using a retirement annuity has developed into a way of protecting excess possessions while claiming Medicaid LTC benefits. Let's see how…
Retirement Annuities and Medicaid Planning -- Married Couples
When the wife or husband claims Medicaid assistance for his long term care, their state can consider the couple's assets available for paying for Medicaid's assistance. But there are certain issues that make some assets non-countable or exempt. The healthy spouse is made available a percentage of assets (the spousal allowance) as a means of supporting himself/herself. But over and above that amount, these community assets must go to pay the LTC costs. However, one other exception to help the couple's finances is that the well-spouse can have an unlimited amount of income.
So in some states, purchasing a retirement annuity with assets in excess of Medicaid's limitations converts them into the income stream. The Medicaid rules allow asset transfers between spouses so the healthy spouse simply takes any portion of the joint assets and purchases a retirement annuity in his own name. This has been a most common Medicaid planning technique.
The federal government, in effort to close this "loophole" enacted some restrictions.
The Deficit Reduction Act of 2005 (DRA) requires that a retirement annuity must meet the following requirements to get excluded from Medicaid's claims. These are generally:
• The retirement annuity must be irrevocable
• The annuity cannot include a term longer than the purchaser's life expectations and the payments expected during the annuitant's life requirement must at least equal the price tag on the annuity,
• The payments must start immediately, so a deferred annuity can be excluded, and
• Unless there is a spouse, a, or disabled child, their state must be named as the the beneficiary up to the amount of State Medicaid benefits provided
According to a 2006 amendment to the DRA, the well-spouse has to name the State as the remainder beneficiary with regard to costs incurred by the State health programs recipient as well as himself/herself in the event that he/she ever receives State health program benefits. But this would only enter into effect if that spouse were to die before the payments under the retirement annuity had terminated.
Retirement Annuities and Medicaid Planning -- Single Individuals
When a single individual seeking State medicaid program benefits for long term care purchases a retirement annuity, the interest income from his annuity payments must be turned over to the State. When he dies, any remaining money in the annuity initially goes to the state to pay any unpaid nursing home bills and reimburse the State for prior support payments. Everything left over can then go to beneficiaries.
Be sure to check for current regulations regarding the use of retirement annuities for State medicaid programs regulations on this issue are fluid.